Detailed Rationale

CRISIL Ratings has upgraded its rating on the non-convertible debentures (NCDs) of Godrej Industries Ltd (GIL) to ‘CRISIL AA+/Stable’ from ‘CRISIL AA/Stable’ while reaffirming its rating on the commercial paper programme at ‘CRISIL A1+’. Also, CRISIL Ratings has assigned its ‘CRISIL AA+/Stable’ rating to Rs.3,000 crore NCDs.

 

CRISIL Ratings has withdrawn its ratings on Rs.750 Cr of Non convertible debentures as the same were redeemed. The withdrawal is in line with CRISIL Rating’s withdrawal policy (See Annexure 'Details of rating withdrawn' for details). CRISIL Ratings has received independent confirmation and other relevant documents that these instruments are fully redeemed.

 

The rating action reflects GIL’s track record of maintaining strong net debt cover (ratio of total market value of investments to net debt) of more than 8 times over the last 5 fiscals through 2024. The market value of GIL’s shareholding in listed group companies as on August 31, 2024 remained comfortable at Rs 84,049 crore (up from Rs 66,726 crore as on March 31, 2024) against net debt of Rs 7,765 crore (netting off cash balance of Rs 908 crore) as on August 31, 2024. The net debt cover is expected to remain healthy going forward. Further, GIL’s investments amounting to Rs 2,681 crore as of August 2024 in Godrej Capital Ltd (GCL) provides additional financial flexibility.

 

GIL continues to benefit from strong reputation of the Godrej group among lenders and investors in the capital markets. Furthermore, GIL’s management has articulated to always maintain a net debt cover of well above 4.75 times, which is a change in stance from the erstwhile articulation of 4.0 times. CRISIL Ratings also factors in GIL’s management’s stance on monetisation of its investments, if required, to support cash flow as well as maintain debt cover threshold at above articulated level.

 

GIL continues to invest in GCL, the subsidiary engaged in financial services, to fund its growth plans. These infusions have resulted in increase in GIL’s adjusted gearing to 5.64 times as on March 31, 2024 from 4.03 times as on March 31, 2023. While comfort is derived from the significant market value of quoted investments relative to overall debt planned, higher-than-expected outflow towards group companies will remain a key rating sensitivity factor. GIL’s credit risk profile will also remain susceptible to market risk and large refinancing requirements.

 

With respect to the company’s chemical business, operating income and profit before interests and taxes (PBIT) margin had witnessed a decline to Rs 2,697 crore and 9%, respectively, in fiscal 2024 against Rs 4,173 crore and 17%, respectively in the previous fiscal. This was on account of several challenges being faced by chemicals industry in fiscal 2024 related to sluggish demand mainly due to destocking of excess inventory accumulated by customers during COVID-19 pandemic and post covid disruptions coupled with some geopolitical issues. The operating income and PBIT margin stood at Rs 732 crore and 11%, respectively in the first quarter of fiscal 2025 (Q1 2025) from Rs 726 crore and 15% for the corresponding period in fiscal 2024.

Analytical Approach

CRISIL Ratings has followed the holding company approach and considered the standalone business and financial risk profiles of GIL. Furthermore, CRISIL Ratings has applied its capital allocation framework to factor in the capital required by financial services entities to maintain their credit profiles.

 

To arrive at the net debt for calculation of debt cover, CRISIL Ratings has netted-off the debt that can be sustained by operating profits excluding income/expenses related to investments (Rs 308 crore for trailing 12 months ending June 2024) of GIL to maintain a similar credit profile, in addition to netting-off unencumbered cash and cash equivalents.

Key Rating Drivers & Detailed Description

Strengths:

• Strong financial flexibility: The financial flexibility arises from GIL’s shareholding in the listed group companies which have healthy standalone credit profiles. GIL is the second-largest shareholder in the group's flagship company, Godrej Consumer Products Ltd (GCPL; rated ‘CRISIL A1+’), the largest shareholder in Godrej Properties Ltd (GPL; rated ‘CRISIL A1+’) and Godrej Agrovet Ltd (GAL; rated ‘CRISIL A1+’). GIL holds 23.74% stake in GCPL, 47.34% stake in GPL and 64.87% stake in GAL as of June 2024, which translate into a market value of Rs 84,049 crore as on August 31, 2024. The market value was significant against the net debt of Rs 7,765 crore as on August 31, 2024. The exposure may increase over the medium term, driven by the company’s plans to fund growth in the financial services business.

 

GIL has investments of Rs 2,681 crore as of August 2024 in GCL which provides additional financial flexibility. GIL has a track record of maintaining strong net debt cover of more than 8 times over the last 5 fiscals through 2024 with the net debt cover over 9 times as of September 2024. Furthermore, GIL’s management has articulated to always maintain a net debt cover of well above 4.75 times. CRISIL Ratings also factors in GIL’s management’s stance on monetisation of its investments, if required, to support cash flow as well as maintain debt cover threshold at above articulated level.

 

GIL has around half of the debt as short-term debt as on August 31, 2024. Nevertheless, refinancing risk is mitigated by available financial flexibility and strong reputation of the Godrej group among lenders and investors in the capital markets. Also, the borrowing mix of GIL is shifting towards sizeable term debt obligation with raising of NCDs from short-term borrowing.

 

• Healthy reputation of the promoters: GIL is held by the Godrej group, which has an established track record and a strong reputation among lenders and investors in capital markets. Godrej group has incubated and scaled up most of the underlying businesses with operating companies doing well. The group is also trying to expand its chemical business operated under GIL. Family Settlement Agreement and the Brand & Non-Compete Agreement (both dated April 30, 2024, entered between members of the Godrej family) has been completed and doesn’t have any bearing on credit profile of GIL and other operating companies (GPL, GCPL, GAL, GCL) as GIL’s shareholding in these operating companies will remain the same with no changes in management team operating these companies.

 

Weakness:

• Susceptibility to market risk: GIL remains susceptible to prevailing market sentiments and share prices of GCPL, GPL and GAL. Any increase in systemic risk, leading to a sharp decline in share prices of these companies, will be a key rating sensitivity factor.

Liquidity: Strong

Liquidity is supported by strong net debt cover over 9 times currently and cash and equivalents of Rs 908 crore as on August 31, 2024. GIL has around half of the debt as short-term debt as on August 31, 2024. Nevertheless, refinancing risk is mitigated by available financial flexibility and strong reputation of the Godrej group among lenders and investors in the capital markets. Also, the borrowing mix of GIL is shifting towards sizeable term debt obligation with raising of NCDs from short-term borrowing. GIL continues to benefit from strong reputation of the Godrej group among lenders and investors in the capital markets. Furthermore, GIL’s management has articulated to always maintain a net debt cover of well above 4.75 times. CRISIL Ratings also factors in GIL’s management’s stance on monetisation of its investments, if required, to support cash flow as well as maintain debt cover threshold at above articulated level.

 

Environment, social and governance (ESG) profile

CRISIL Ratings believes the ESG profile of GIL supports its already strong credit risk profile.

 

Chemical manufacturers can have a significant impact on the environment because of the high greenhouse gas (GHG) emissions, water consumption and high hazardous waste generation in core operations. The sector has a social impact because of its large workforce and impact on health and wellbeing of workers and the local community given its nature of operations.

 

GIL has undertaken various initiatives and efforts to mitigate its environmental and social impact and strengthen its ESG profile.

 

Key ESG highlights:

• Until fiscal 2023, GIL had reduced its specific energy consumption by 17%, water consumption by 46% and overall carbon footprint by 66% from the fiscal 2011 levels.
• The company has consistently focused on use of renewable energy and around 68% of the energy consumed came from renewable sources in fiscal 2023.
• The company has taken initiatives and implemented policies to promote gender diversity, employee safety, community engagement and safe procurement. Its sustainable supply chain policy focuses on responsible conduct with all stakeholders, employee health and safety, local community development, business integrity and ethics, and human rights.
• The governance structure is characterised by 50% of the board comprising independent directors, presence of an investor grievance redressal cell and extensive disclosures.

 

The importance of ESG is growing among investors and lenders. GIL’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given the high share of market borrowings in overall debt and access to both domestic and foreign capital markets.

Outlook: Stable

CRISIL Ratings believes GIL will maintain a heathy cover over the medium term supported by the high value of investments in key operating entities of the Godrej group. Also, the company will continue to enjoy strong financial flexibility as the key holding company of the group.

Rating sensitivity factors

Upward factor

• Improvement in the performance of investment companies, resulting in rating upgrade by one or more notches

 

Downward factors

• Subdued performance of investment companies, resulting in rating downgrade by one or more notches
• Increase in debt or fall in the market value of investments, weakening the net debt cover to below 4.75 times on a sustained basis

About the Company

GIL is the holding company for Godrej group entities with shareholding in GCPL, GAL and GPL which are listed on exchanges. GIL holds 23.74% stake in GCPL, 47.34% stake in GPL and 64.87% stake in GAL as of June 2024. It also owns 89.8% stake in unlisted GCL with investments of Rs 2,681 crore as of August 2024.

 

GIL, one of India's leading manufacturers of oleochemicals, makes more than a hundred chemicals for use in over two dozen industries. It also manufactures edible oils, vanaspati and bakery fats. The company was called Godrej Soaps until March 31, 2001. Thereafter, the consumer products division was demerged into GCPL, and Godrej Soaps became GIL.

 

The company, a leading producer of fatty acids, fatty alcohols and surfactants, has plants at Valia in Gujarat, and at Ambernath in Maharashtra. Products are exported to 60 countries across the world.

 

For the first quarter of fiscal 2025, net profit is Rs 105 crore on operating income of Rs 986 crore, compared with net loss of Rs 28 crore on operating income of Rs 768 crore in the corresponding period of the previous fiscal.

Key Financial Indicators*

As on/for the period ended March 31	Unit	2024	2023
Operating income	Rs.Crore	2,829	4,413
Profit after tax (PAT)	Rs.Crore	(201)	233
PAT margin	%	(6.5)	5.1
Adjusted debt/adjusted networth	Times	5.64	4.03
Adjusted interest coverage	Times	0.80	1.67

*As per analytical adjustments made by CRISIL Ratings

Any other information: Not Applicable